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What is a Paper Millionaire?

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  • Written By: Diane Goettel
  • Edited By: W. Everett
  • Last Modified Date: 16 November 2016
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A paper millionaire is a person who owns one million dollars or more in investments. The difference between a paper millionaire and an actual millionaire is that a paper millionaire has a significant portion of his money invested in stocks and other kinds of securities while an actual millionaire has most of his money either in savings or in investments that are not likely to drop in value. Stock market investments, however, can quickly rise and fall in value, which means that a person with lots of investments in the market can be a millionaire one day but not the next and vice versa.

Very often, when people have lots of money invested in the stock market, they will refer to their total worth as their worth "on paper." This means that, based on reports of the performance of their stocks, they are worth a certain amount of money. This is where the term "paper millionaire" comes from. As reports change from day to day, so can one's status as a millionaire. As such, a paper millionaire does not have a firm grasp of the title of "millionaire."

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When a certain market is growing very quickly, it is common for people invested in that market to become paper millionaires. A good example of this would be the dot-com bubble that burst in the early 2000s. There were lots of people invested in dot-com companies who had become paper millionaire only to fall below — far below, in some cases — a net worth of one million dollars.

For a paper millionaire to become an actual millionaire, his investments must be liquidated in part or in entirety from the stock market and put into a bank. For people who make their money with investments, this is not always an option. While some portion of investments in the stock market may be withdrawn as profits are earned, most investors keep part of their money in the stock market in hopes of making additional earnings in the future.

As it might take a while to siphon enough money out of stock market investments and into a bank account, it is possible for a person to be a paper millionaire for a long time before becoming an actual millionaire. This process can take even longer if the market is going through a rocky period or if the investor makes some investment choices that lead to a loss.

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Ana1234
Post 3

@Iluviaporos - I find it interesting that millionaires are even considered to be that much of a big deal these days, to be honest. I mean, I'm certainly not a millionaire myself and it's not like a million dollars is a negligible sum, but I feel like people still think of someone who is a millionaire as being absolutely filthy rich and these days that isn't really true.

Particularly for paper millionaires, who probably don't have very much real cash to throw around at all. And that's why they end up getting into trouble, because they see themselves as being rich because they have a million dollars on paper, and so they rack up credit card debt and loans trying to

live the way they think a millionaire should live. But a fancy sports car is pretty much going to eat up half of a million and a fancy house will take even more, so the lifestyles people expect to be able to live end up being out of reach.

And then the stock market crashes and the dirt really hits the fan.

lluviaporos
Post 2

@browncoat - We've definitely come a long way from the days when people would expect the government to back up all the money in circulation with gold. There was even an argument once about whether it was prudent to change from gold to silver. The ones who argued against doing that would probably be horrified by today's system.

But for the most part it works. And I don't actually think it's a bad thing for people to be able to work without the constraints of money, even money in accounts.

browncoat
Post 1

I find it kind of scary that people can be paper millionaires in the first place. I know we are all supposed to take for granted the fact that money is often ephemeral and exists in some kind of strange limbo where we always expect to be able to make it real at a whim. But I suspect if every paper millionaire was to suddenly decide to cash in their paper, they would find a great deal of difficulty in doing so. I suspect that the system depends on a lot of this money only literally existing in numbers rather than in reality.

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